Answer to Question #6131 in Economics of Enterprise for Lamarcus Streeter

Question #6131
1. Which of the following statements is CORRECT?

a. The constant growth model takes into consideration the capital gains investors expect to earn on a stock.
b. Two firms with the same expected dividend and growth rates must also have the same stock price.
c. It is appropriate to use the constant growth model to estimate a stock's value even if its growth rate is never expected to become constant.
d. If a stock has a required rate of return rs = 12%, and if its dividend is expected to grow at a constant rate of 5%, this implies that the stock’s dividend yield is also 5%.
e. The price of a stock is the present value of all expected future dividends, discounted at the dividend growth rate.
1
Expert's answer
2014-07-08T07:49:29-0400
a. The constant growth model takes into consideration the capital gains investors expect to earn on a stock.

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